Is the Help to Buy scheme helping benefiting house builders more than those at the bottom of the ladder, asks Duncan Farmer.
There was little in the chancellor’s budget last month to arouse much excitement for house-buyers, unless you count the fact that first-time buyers would no longer pay stamp duty on shared-ownership homes costing between £300,000 and £500,000 and the extension of Help to Buy until 2023.
Under Help to Buy borrowers with a 5 per cent deposit can apply for a 40 per cent interest-free loan, on which they pay nothing for the first five years, and borrow the remainder from a bank or building society. Someone looking to buy a new £400,000 house or flat in London would need to find only £20,000, and would get £160,000 from the government and £220,000 from a traditional lender.
Since the scheme was introduced in 2013, more than 160,000 people have used government money to buy their first house or flat, and have borrowed more than £8 billion of state cash to buy homes worth about £40 million.
While this is obviously good news for those buyers able to take a step up the property ladder, there are suggestions – strongly denied by the industry – that house builders are using the scheme to inflate prices and boost profits.
A look at their share prices over the past five years of the scheme shows that they have done very nicely, up by at least 60 per cent over the period, and that doesn’t include any dividends their investors will have picked up along the way.
Some have done even better. At the beginning of this year the share price of Persimmon was three times higher than it was when Help to Buy started, which some have put down to the fact that more than half of the homes it’s built have gone to buyers partly funded by the scheme. Low interest rates over the period will also have helped the company, just as they have helped all borrowers. The biggest earner was Jeff Fairburn, the company’s chief executive, who was awarded a £75 million bonus, but was then forced out by public opinion.
Whether would-be buyers saving for a deposit should put their cash into house builders’ shares in the expectation of similar returns as the scheme goes on for another five years remains to be seen. The consensus among City analysts is that they are certainly worth holding and some believe they are still a buy.